Local attorney warns Michigan residents: beware of insurance 'step-down' clause


by Tom Sinas

What if you discovered that your auto insurance policy basically eliminated coverage for your loved ones when they’re injured by you or another family member in a car accident?

Some insurance companies in Michigan are doing just that, by inserting “step-down clauses” in their policies. These clauses apply when one family member is hurt in an auto accident due to the negligence of another family member, and brings a tort liability claim against the other family member.

The purpose of a step-down clause is to reduce the insurance company’s liability to the state-mandated minimum of $20,000. It doesn’t matter how much insurance was purchased, how severe the injury is or how negligent the driver may be – liability is limited to $20,000.

Family step-down clauses are repugnant and reprehensible. Suppose a father has $500,000 worth of insurance on his car and the policy includes a step-down clause. Suppose he is driving that vehicle with his eight-year-old son and his son’s seven-year-old friend in the back seat, he causes a crash, and the two boys are seriously injured. The step-down clause would limit his son’s recovery to $20,000
in non-economic damages. However, the seven-year-old friend can make a claim up to the policy limits.

Family members seriously injured due to a relative’s negligence should not be treated any differently than a person seriously injured due to a stranger’s negligence. Moreover, even if there’s an eyewitness to support a relative’s tort liability claim, insurance companies will typically still enforce a step-down clause.

Another troubling factor is this: most Michigan consumers don’t even know they have this limiting language in their auto insurance policy. Insurance companies don’t tell them about the clauses, which are standard for some carriers. Sadly, families who suffer injury or death do not learn what a step-down clause means until it’s too late.

Many insurance companies have no problem hiding step-down provisions in their policies. They assert that step-down clauses help prevent fraud. But this justification is unwarranted because: (1) most policies address fraudulent claims; (2) it’s already a crime in Michigan to commit insurance fraud; and (3) insurance companies have plenty of legal tools to challenge an alleged fraudulent claim.

If step-down clauses are unfair to consumers, then why are they being used? Because Michigan appellate courts have consistently upheld them, and the Michigan Insurance Commissioner has done nothing to get rid of them. The Insurance Commissioner could actually end this shameful practice with the stroke of a pen.

Because it doesn’t appear the courts will be eliminating step-down clauses anytime soon, it’s up to Michigan consumers to take matters into their own hands and demand the insurance industry abolish these unfair provisions.

Reach out to your friends and family members, tell them about auto insurance step-down provisions and ask them if that’s a risk they are willing to take. If your policy includes a step-down clause, seriously consider buying a new policy with an insurer that doesn’t use step-down clauses.

Consumers can call the Insurance Commissioner at (877) 999-6442 or e-mail the Michigan Department of Insurance and Financial Services at difs-ins-info@michigan.gov and demand that step-down clauses be eliminated.

Tom Sinas is a personal injury and auto no-fault attorney with the Sinas Dramis Law Firm in Grand Rapids. He is also a member of the Grand Rapids Bar Association Board of Trustees, and, in May,   he received the Brain Injury Association of Michigan’s Prevention Award. Sinas can be reached at tomsinas@sinasdramis.com.